Santa Clara County ambulance firm facing financial troubles

The private ambulance company serving Santa Clara County's nearly two million residents is in dire financial shape, according to market reports and industry insiders, reporting millions of dollars of losses and struggling to pay its bills.

Scottsdale, Ariz.-based Rural/Metro Corp. missed a crucial bond payment this week, sending county officials scrambling to make sure backup plans are in place, should the situation deteriorate and a new provider is needed in a hurry.

"Obviously their current situation -- regardless of how you look at it -- is troubling, to say the least," said the county's Chief Operating Officer Gary Graves. "When their debt is downgraded to junk, that's not a good thing."

An emailed statement sent by Michael Simonsen, Rural/Metro's California director of public affairs, said the company "continues to take action to align our operations and capital structure with the realities of our business." It went on to say, "our Board and management team recently elected not to make the interest payment due on July 15 for our unsecured bonds due in 2019." It added that while "senior lenders" are being kept informed," the company had no further comment.

"From an operational perspective, it is business as usual at Rural/Metro," the statement read. "We remain committed, as always, to providing life-saving services to the residents and visitors of Santa Clara County as well as all the other communities we serve throughout the United States."

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Graves added that he's been informed Rural/Metro now has a 30-day window to make up the missed bond payment, and intends to do so.

A report earlier this month from Standard & Poor's Capital IQ said the company faced a July 15 deadline to pay a $15.6 million bond payment "amid jitters" over deteriorating earnings.

Under the terms of its five-year contract to provide 911 transports for most of the sprawling South Bay, Rural/Metro of California must stay out of bankruptcy and pay its debts, or face a potential breach of contract. County officials still aren't clear what impact the financial troubles of Rural/Metro's parent company would have on the local contract because Santa Clara County's deal is with a company subsidiary.

Nonetheless, Graves said the county has now stepped-up scrutinizing what might lie ahead and how best to respond to Rural/Metro's financial challenges. "No interruption, that's what we are solely focused on," Graves said. "We're developing plans so that we're prepared."

The county's concerns have mounted over time. In March, Rural/Metro reported $8.5 million in local losses. And to date, the company has paid more than $5 million in fines for shortcomings that include failing to have three ambulances poised to deploy, arriving late and vehicle breakdowns, public records show.

Larger troubles also are evident: In May, Moody's downgraded the company's credit rating to junk status. Since 2010, it has had three CEOs, and local officials say they have dealt with a succession of three CFOs. On Thursday, Rural/Metro's General Counsel Chris Kevane, appointed just six months ago, was suddenly missing from the list of top managers on the company's website.

Simonsen emphasized the ambulance provider's performance of late. This year, Rural/Metro has met its contractual obligations to arrive within 12 minutes on 90 percent of calls, and in June logged its best times since it began 911 transports here in 2011, a 94.2 percent compliance rate on 6,444 medical service calls.

That follows a rocky start, when the company failed to meet those response times in three separate months, triggering a significant "breach of contract" warning from county regulators in January.

Rural/Metro has also been under scrutiny because of it ties to former Supervisor George Shirakawa, Jr. who pushed for the $375 million contract that squeaked through on a 3-2 vote. The San Jose politician -- who is awaiting sentencing after pleading guilty to multiple criminal counts of corruption and abuse of public funds -- received a campaign contribution from Simonsen. Shirakawa's campaign also benefited from money spent by the ambulance company's political action committee. Since it set its sights on the lucrative Santa Clara County contract, Rural/Metro has employed Shirakawa's former lobbying partners, Tom Saggau and Dustin DeRollo, as political consultants.

Rural/Metro is one of the nation's leading ambulance providers, with contracts in roughly 700 communities and 21 states. Previously a publicly traded company, it was purchased in June 2011 for $438 million by the Warburg Pincus private equity investment firm.

Private ambulance companies operating under deals like Santa Clara County's do not receive taxpayer subsidies. Instead, they earn the rights to provide the high-cost business of delivering patients from emergency scenes to hospitals. The $1,118.20 cost of each trip, plus mileage, is paid by the patient, private insurers, Medicare or Medi-Cal.

The business is considered to be a potentially high-profit venture. But there are some central challenges: Patients who refuse transport, patients who don't pay their bills, and the low reimbursement rates from government-funded insurance, which equal far less than the total bill.

The ability to cover the difference is key. Yet in 2010, amid fevered contract negotiations, an independent financial analyst, as well as the longtime incumbent American Medical Response, vigorously questioned financial projections Rural/Metro used for its bid.

AMR's western region CEO warned the county in a November 2010 letter that Rural/Metro had "submitted an unrealistic proposal which is not financially viable and is doomed to fail." Thomas Wagner said the company "erroneously assumed that it can collect 82 percent more revenue from low-income and uninsured residents" than AMR had achieved in actual collections..